Will Entain, the British gambling company, maintain its standing among industry leaders?

Legal issues and significant changes in leadership have left Entain in a rather contentious position. The abrupt departure of the CEO, coupled with the company's share price plummeting to its lowest in Entain's history, raises questions about its future independence. Will the company remain autonomous, become part of a larger holding company, or was the recent management strategy geared towards absorption? This article aims to explore these possibilities.

In recent months, the professional gaming media has been buzzing with news about Entain, and unfortunately, much of it has been unfavorable. The saga culminated in the resignation of CEO Jette Nygaard-Andersen, who had been at the helm for several years. Nygaard-Andersen vacated her position suddenly.

The departure of the executive and the legal issues facing the company are bound to impact the entire industry. Entain now finds itself without a permanent CEO (Stella David has stepped in as interim CEO) and is grappling with record fines.

With Entain's share price hitting its lowest point since August 2020 at £8.00 ($10.11) in early December 2023, down from £22.10 in September 2021, industry observers speculate that potential suitors are eyeing Entain as a potential target for mergers and acquisitions.

It's worth noting that DraftKings attempted to acquire Entain in October 2021 for £16.2 billion. Although the US company initially offered £25 per share, it raised the bid to £28 per share and was still rebuffed—the deal did not materialize.

"The resolution of the HMRC investigation into the legacy business... was a turning point for me and for Entain." – says Jette Nygaard-Andersen.

Following Nygaard-Andersen's resignation, Entain's share price experienced a 5% jump. However, it remains below £8.40. Notably, MGM Resorts, a business partner and joint operator of the BetMGM digital brand, tried to acquire Entain for £8.1 billion in January of the same year that DraftKings made its bid.

The question now arises: is Entain still considered a viable proposition, given its vulnerabilities and low share price? Despite its challenges, Entain owns a portfolio of attractive brands, including Ladbrokes, Coral, Bwin, Partypocker, Foxy Bingo, STS, and others. As US industry analysts aptly put it, "Entain has its metaphorical finger in a lot of metaphorical pies," making it an appealing acquisition for other operators.

It's unfair to lay blame solely on Nygaard-Andersen and her management team for the company's current predicament. During her three-year tenure, she undoubtedly grappled with the fallout from significant failures that preceded her leadership.

The most significant setback was the £585 million fine for bribery that Entain had to pay to HMRC this winter. The company officially acknowledged this on December 5 after several months of tense silence.

"Entain has undergone fundamental and profound changes. We can now focus on the future." - Barry Gibson, Entain Chairman.

Barry Gibson, Entain's chairman, remarked, "This is the final stage in a process that has threatened our business since HMRC began investigating the company. The process began when the former management team sold Entain six years ago. We actively cooperated with the investigation at all stages of the investigation, and I am pleased to report that the court recognized this. Of course, we now know that within eight days the company will be without a CEO."

Nygaard-Andersen left her post after facing pressure from within and outside the company. Some individuals publicly expressed dissatisfaction with her leadership. However, it's worth noting that she was the first female executive to drive share prices up by 95% in her first year, reaching a record high of £22.10 in September 2021.

The primary point of contention wasn't just the number of mergers and acquisitions under Nygaard-Andersen's leadership but also their quality. During her tenure, Entain acquired 11 companies worth more than £2 billion:

• March 2021 - Entertainment Technologies £51.m;
• August 2021 - Unicorn £50 million;
• December 2021 - Klondike;
• February 2022 - Avid Intl £174 million;
• March 2022 - Totolotek;
• June 2022 - BetCity £729 million;
• August 2022 - SuperSport £581m;
• March 2023 - Tiidal Gaming NZ £8m;
• April 2023 - 365scores £120 million;
• June 2023 - STS £717m;
• July 2023 - Angstrom Sports £122 million

While some deals appear optimistic, others are perplexing. For example, the acquisition of Unikrn, a company involved in betting in the export sector, was closed earlier this year. Entain announced the closure of the brand's B2C operations, and the site shut down on October 20th.

The abrupt closure shocked many, considering that Unikrn was one of the longest-running export betting companies, dating back to 2014. Rumors circulated among Unikrn employees, pointing to years of mismanagement by Entain, specifically concerning the people hired to run Unikrn after its acquisition.

Entain also acquired BetCity in September 2022, despite being aware of its legal problems with the KSA, the Dutch Gambling Authority. While the €3 million ($3.2 million) fine is not exorbitant for a company like Entain, violations of anti-money laundering (AML) and anti-terrorist financing (CFT) practices did not present the company in the best light.

This questionable business move led to Eminence Capital expressing dissatisfaction with the £717 million acquisition of STS in an open letter on June 16, 2023. The investment company, which owned 2% of Entain's shares, labeled the deal "tone-deaf" and suggested that "management either doesn't understand anything about finance or, worse, thinks the company's shareholders are naive fools."

"We remain confident in our ability to realize the significant growth opportunities that lie ahead." – Entain

Despite mounting pressure, Entain expressed confidence in its ability to navigate challenges. When Gambling Insider questioned it about the questionable transactions, the company issued a statement: “We continually engage with all of our shareholders and strive to constructively address any questions or concerns they may have. "The executive team, with the full support of the board, recently laid out a clear plan to accelerate actions to deliver sustainable organic growth, expand margins, strengthen the team, capitalize on US opportunities and create sustainable shareholder value for our shareholders."

So, only time will reveal the "growth opportunities" that lie ahead for Entain and whether the company will succumb to US buying pressure. The more intriguing question is whether Entain could find itself in the position of a bargain acquisition. With three years of expenses, low share prices, and a diverse portfolio of brands, the best way out of its current situation might be to find another buyer, provided interest persists.